The U.S. dollar was hovering near one-month highs against a currency basket on Wednesday, supported by higher U.S. Treasury yields after the U.S. temporarily eased restrictions on Chinese telecommunications giant Huawei.
The move came as a reprieve for markets which had been roiled by fears over the escalating trade war between Washington and Beijing but investor sentiment remained subdued as investors monitored the increasing involvement of tech companies in the trade spat.
“The trade dispute won’t be resolved easily, so the risk-off mood won’t come off all of a sudden. I think market sentiment will rather improve one small step at a time,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
At 03:30 AM ET (0730 GMT), the dollar index, which measures the greenback against a basket of six major currencies, was at 97.942, just below Tuesday’s peaks of 97.953, the highest level since April 26. The index is up 2% year to date.
The dollar edged lower against the yen, with USD/JPY dipping 0.1% to 110.38, off the two week high of 110.67 reached in the previous session.
Data overnight showed that Japanese exports fell for the fifth straight month in April, highlighting the threat to the world’s third largest economy from the U.S.-China trade war.
Sumitomo Mitsui’s Sera said the yen’s weakness overnight was thanks to the higher U.S. Treasury yields, which ticked up in response to the recovery in U.S. equities.
“When yields are rising, it’s natural for the dollar to be bought. I think moves in U.S. yields are really important,” she said.
The 10-year U.S. Treasury note yield was last at 2.421%, almost unchanged for the day.
Eurosceptic parties are widely expected make a strong showing, which could hamper approval of the next European Commission president and budget.
The British pound sank to its lowest levels since January, with GBP/USD down 0.3% to 1.2666 after Prime Minister Theresa May’s final attempt to win over support for her EU withdrawal deal fell flat, throwing the country into renewed turmoil over Brexit.